Mideast investors to spend $180bn in global real estate

Dubai, June 16, 2014

Middle Eastern investors are expected to spend $180 billion in commercial real estate markets outside of their region over the next decade, according to a recent research.

Global property advisory CBRE’s latest research pointed out that the major increase in flows of Middle Eastern capital into global markets is emerging from the extraordinary mismatch between the lack of institutional real estate in domestic markets and the huge spending power concentrated in the region.

Europe is the preferred target with 80 per cent of the $180 billion targeted for the region over the next 10 years, with nearly $85 billion expected to flow into the UK, and $60 billion directed at continental Europe. France, Germany, Italy and Spain, it said.

Global real estate markets have seen significant inflow of Middle Eastern capital with $45 billion invested between 2007 and the end of 2013 – seven times the reported activity in its home market, said the report.

With $20 billion invested outside their home region in commercial property in the last two years alone, there is strong evidence that Middle Eastern players are increasing their interest and investment allocations to direct real estate, it said.

The Middle East Sovereign Wealth Funds (SWFs) are among the world’s largest and most influential sources of capital, accounting for 35 per cent of SWFs Assets under Management (AUM) globally.

The average target allocation to real estate by global SWFs is 7.9 per cent, according to Pregin Real Estate Spotlight November 2013.

Nick Maclean, managing director, CBRE Middle East, said: "The 'buy and hold' strategy adopted by many Middle Eastern investors within their home region and the resultant lack of deal flow opportunities leaves much unsatisfied demand here.

“Coupled with increased confidence in global markets and the need for diversification, overseas investment has grown strongly. This trend is set to continue and with new sources of Middle Eastern capital, particularly from Saudi, set to enter the market over the next couple of years, the demand for real estate is increasing strongly.

"Since the Global Financial Crisis, SWFs from the Middle East have become one of the most significant sources of capital in the global real estate landscape. The demand from these institutions has evolved during the last few years into a sophisticated source of liquidity for many of the mature real estate markets around the world."

Nearly 90 per cent of all Middle Eastern commercial real estate investment overseas last year was in Europe. This is in contrast to Asian capital that has become increasingly diverse geographically in the last 18 months.

The majority of direct Middle Eastern investment will target Europe as it offers diversification, cultural acceptance, high liquidity and market transparency, while there will be an increase in allocations towards the Americas and Asia Pacific regions, said the report.

Around $85 billion of the total allocation will be invested in the UK, with continental Europe expected to receive $60 billion, nearly five times the level of direct investment by Middle Eastern investors in the previous decade.

Germany and Italy are key targets with Spain and France, particularly in the hotel sector, now a strategic destination.

“This strategy favours prime buildings in core markets and often very large lot sizes. Offices feature heavily in their acquisitions, while in the last couple of years there has been greater interest shown in retail, as illustrated by a string of high street acquisitions in London and Paris, as well as provincial cities in the UK and France. Interest in hotels is also noticeable and extends from a historic interest in the hospitality sector in home markets.”

Iryna Pylypchuk, EMEA Research and Consulting, CBRE, said: “Culture, openness and favourable taxation laws are significant push factors for Middle Eastern buyers towards Europe, and the UK in particular. Close historical, political and economic relations, as well as Britain’s recent decision to become the first non-Muslim nation to issue sharia-compliant Islamic bonds, confirm Europe as the favoured destination for Middle Eastern capital.”

CBRE also estimates that about 10 per cent of the capital (around $18 billion) will flow into the region, representing an average annual investment of around $1.8 billion, notably above the $1.2 billion invested in 2013.

The number of deals completed in the region has been on the increase, but how quickly that interest will crystalise into a more robust pace of acquisitions, rather than a small number of large asset deals, remains to be seen. CBRE expects that the remaining 10 per cent of the $180 billion will be intended for allocation towards Asia Pacific. - TradeArabia News Service